January 27, 2010 |
|Andrew Sentance at the Bank of England. He warns that the Bank will have to act on interest rates as the economy recovers. Photograph: David Levene|
Strength in the international economy will help the UK avoid a double-dip recession but the pace of recovery remains uncertain, according to a Bank of England policymaker.
Andrew Sentance, a member of the rate-setting monetary policy committee (MPC), pointed to signs of improving housing market activity, and stronger business and consumer confidence, as he highlighted a return to economic growth in recent months.
His comments follow official data yesterday showing that the UK only just crawled out of recession at the end of 2009. Sentance stressed, however, the support to Britain's recovery provided by the "particularly impressive" turnaround in the international economy.
"As long as the international economy continues to grow healthily, I believe we should avoid the feared 'double-dip' recession," he said in a speech to a British Property Federation conference in London today.
"But the pace of recovery is still very uncertain. The UK will also need a reasonably healthy contribution from private-sector consumer and investment demand if it is to sustain growth over the recovery," he added,
Sentance, one of the four externally appointed members of the MPC, warned that the Bank of England would have to act on interest rates as the economy recovered. He said the last six to nine months had already seen a "more positive trend emerging in both the UK economy as a whole and more specifically in the housing market".
The central bank cut rates to a record low of 0.5% during the financial crisis and ensuing global downturn. But now it must seek to weigh up headwinds from that turmoil and the pressures of government action to rein in the public-sector deficit against support from the global economy, a competitive exchange rate and a recovery in confidence.
Sentance echoed his recent comments in a Guardian interview on the "bounce-backability" of British business and also highlighted upbeat signals from the labour market, business surveys and high-street spending that "continue to suggest that recovery started earlier and may have been stronger than the provisional GDP [gross domestic product] estimates currently suggest".
"As the recovery develops, the economic situation will change and the MPC must be ready to adapt its policies to the changing economic situation over the course of the recovery – just as we have done through the recession," he added.
Turning to the recent property market bounce, Sentance said the underlying forces of demand and supply were likely to be more positive for house prices and investment than in the last recovery in the early 1990s.
"In the short term, the problems in the banking system are likely to continue to act as a dampener on the growth of housing demand. However, if the pressures in the banking system ease over the next couple of years, there could be scope for a much stronger recovery in the housing market, especially if interest rates remain low and monetary conditions remain as relaxed as they are at present," he said.